Ikea: Swedish Supply Chain Management Machine

Ikea is the largest furniture retailer in the world. They are well known for their unique self assemble furniture, and low price points. Founder Ingvar Kamprad’s philosophy that “that anyone should be able to afford stylish, modernist furniture” was executed by selling flat packed furniture at modest prices. Ingvar was obsessed with cost and efficiency. His obsessions fuelled the company, expanding it through Europe first and then worldwide eventually. As of August 2015, Ikea holds 373 stores in 47 countries.

Ikea’s success is greatly attributed to its impeccable and strategic supply chain management. The company’s logistics are extremely complex, considering they engage 1,000 suppliers in 52 countries and have 9,500 active products. Yearly, 2,000 products get discontinued and 2,000 new products are introduced. With such high volumes of sales and inventory, it is vital for Ikea to be a leader in supply chain management. Kamprad’s finely tuned machine has enables the company to lower retail prices to consumers, while many other competitors have passed on price increases.

This Swedish giant as utilized many approaches in supply chain management to be a leader in the sphere and also stay on top. Examples of these approaches are given below:

Ikea has full ownership of product rights, allowing them to change suppliers with ease. This helps them negotiate their costs with manufactures. Contract time commitments between the two parties are particularly long compared to industry standards. This lowers costs and provides stability and market predictability.

Analysts take a proactive approach to forecast costs every four months. This helps them adjust pricing on products based on environmental influences, such as increases in raw good rates. Ikea is consistently in the process of defining, reviewing and adjusting their methods to optimize their business.

Ikea invests in proactively managing their supply chain. They have collaborated with Llamasoft to pilot Supply Chain Guru, a supply chain simulation software tool. Through this software, Ikea was able to identify bottleneck issues with capacity in retail stores. Based on these findings, adding external warehouses was the realized solution, resulting in improved sales.

The combination of retail space and warehouse as one entity enables management to easily replenish stock. This setup also reduces logistical costs as customers are picking up their own products in the warehouse.

The famous flat box packaging streamlines transportation logistics. Items are designed to be stackable for compact transportation. Having the furniture dissembled also makes truckloads more compact and saves on cost. The cost savings are transferred to consumers, which resultantly drives sales.

Nuno Moura from IKEA describes the organisation’s supply chain work and its effects on the business on stage at the Supply Chain Conference 2015.

Ikea has developed been a giant in supply chain management but has also grown in their use of social media. This mix of tools positions Ikea well.

Powered by Brandwatch Vizia, The Listening Hub allows IKEA to visualize valuable consumers insights from across the globe in real-time, allowing insights to be shared throughout different departments, markets and countries. As a result, IKEA are able to be much more agile and proactive in their social activities. The Vizia/Brandwatch Listening Hub at Inter IKEA Systems allows key IKEA stakeholders to gain fuller insight into global conversations about the brand. The Brandwatch analytics platform provides senior stakeholders with an effective planning tool for multiple silos. The Listening Hub provides stakeholders real insights into life at home for customers who are talking about IKEA online

Essentially, genuine feedback from consumers is presented to relevant Ikea departments directly. This rich data gives stakeholders an authentic perception of how consumers perceive Ikea and its products. This social data is relevant to the supply chain management as consumer negative or positive feedback on products should impact sales and also inventory levels. Using tools such as Listening Hub allows Ikea to keep a firm pulse on their business.

Conclusions

Ikea is an authority in supply chain management in a traditional sense. It has worked well for them but there is always room for improvement. Data gained from utilizing resources, such as social media, can improve an organization’s supply chain management. It can increase control over production, and reduce operational and labor costs. Ikea has always strived to have an efficient and stable supply chain. Using social media to improve supply chain management is an obvious growth in the right direction.

Submitted By: Stephanie Lau, University of Waterloo To contact the author of this entry please email at: s37lau@uwaterloo.ca

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